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Details of new myRA retirement savings vehicle revealed

Following up on announcement made by President Barack Obama in his
annual State of the Union speech on Tuesday, the White House released
details of a new retirement savings account to be made available to
employees through their employers. These accounts, myRAs (presumably
an abbreviation for “my retirement account”), which are being
established under the president’s executive authority, are described
as “starter” savings accounts aimed at the 50% of employees who have
no access to employer 401(k) plans (White
House press release, “Fact Sheet: Opportunity for All: Securing
a Dignified Retirement for All Americans,” 1/29/14).

MyRAs will be offered by employers through Roth-like IRA accounts
(i.e., contributions will be made with after-tax dollars and
distributions will be tax free), with the difference that the
principal will be guaranteed, like U.S. savings bonds. According to
the press release, individuals will be able to withdraw these amounts
tax free at any time, although the implementing memorandum suggests
that withdrawal may only be available in an emergency (Presidential
Memorandum to the Secretary of the Treasury, “Retirement Savings
Security,” 1/28/14).

To make it easier for low- and middle-income people to participate,
myRAs will require an initial investment of as little as $25 and
payroll deductions as low as $5. Participation will be voluntary, and
employees are free to opt out. The accounts will earn interest at the
same variable interest rate that applies to the Thrift Savings Plan
Government Securities Investment Fund that exists for federal
employees.

Employees who change jobs will be allowed to keep their myRAs or roll
them into a private-sector retirement account. MyRAs would be
available to households earning up to $191,000 a year ($129,000 a year
for individuals). Participants’ total contributions will be capped at
$15,000 and the accounts will last only up to 30 years. After reaching
the total contribution limit or 30 years, participants will roll the
accounts into a private-sector retirement account, such as a Roth IRA.

The president has directed Treasury within 90 days to begin
developing a pilot project to make myRA accounts available and to
finalize development by Dec. 31, 2014. The press release claims
employers will incur little cost from participating in the program
because they will not contribute to the accounts or administer them.

Auto-IRAs

The president also plans to propose in his budget the establishment
of IRAs funded through payroll deductions (auto-IRAs), for employees
without access to a workplace savings plan. According to the press
release, this plan could provide access to retirement savings to
one-quarter of all workers. The program is designed to make it easier
for employees to participate in saving for retirement by requiring
small businesses that do not offer other retirement savings options to
offer IRAs and automatically enroll employees unless they opt out. The
president has made this proposal in past budgets, and, unlike the MyRA
program, the auto-IRA proposal would require enactment by Congress

According to the White House, about 9 out of 10 employees whose
employers offer 401(k) plans participate in them, whereas only 1 out
of 10 employees without these plans invests in an individual
retirement arrangement (IRA).

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